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Promoting clean technologies: The energy market structure crucially matters

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  • Azomahou, Théophile

    ()
    (UNU-MERIT)

  • Boucekkine, Raouf

    ()
    (CORE, Universite Catholique de Louvain)

  • Nguyen-Van, Phu

    ()
    (CNRS, Université de Cergy-Pontoise,)

Abstract

We develop a general equilibrium vintage capital model with embodied energy-saving technological progress and an explicit energy market to study the impact of investment subsidies on investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy consuming and scrapping is endogenous. It is shown that the impact of investment subsidies heavily depends on the structure of the energy market, the mechanism explaining this outcome relying on the tight relationship between the lifetime of capital goods and energy prices via the scrapping conditions inherent to vintage models. In particular, under a free entry structure for the energy sector, investment subsidies boost investment, while the opposite result emerges under natural monopoly if increasing returns in the energy sector are not strong enough.

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Bibliographic Info

Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 032.

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Date of creation: 2008
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Handle: RePEc:unm:unumer:2008032

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Keywords: Energy-saving; Technological change; Vintage capital; Energy market; Natural monopoly; Investment subsidies;

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